A lack of access to clean energy is widely regarded as a major barrier to achieving the majority of the UN Sustainable Development Goals. A 2016 literature review confirmed electricity supply as one of the top constraints to economic growth in developing countries (McCulloch & Zileviciute, 2016). The study reviewed 55 studies on ‘binding economic constraints’ and found almost all mentioned electricity, around two-thirds discussed electricity access and reliability, while 40% identified electricity as a binding constraint. Particularly low levels of access in Sub-Saharan Africa, especially in rural areas, together with poor quality of supply were frequently cited in these studies.
Academic research on the social and economic impacts of electrification has returned mixed results however. A 2017 literature review (Lee, Miguel, & Wolfram, 2017) noted that, while much of the literature concludes that electrification improves wellbeing, there is a wide range of types of outcomes examined and magnitudes of impacts estimated. Moreover, context varies enormously across studies, making it difficult to assess external validity.
The key question to answer then is not ‘does electrification lead to social and economic outcomes’, but rather ‘under what circumstances does access to electricity lead to positive social and economic outcomes?’
Cost is critical
The cost of electricity is one obvious place to look for an answer. A 2022 study by Wageningen University of 298 grid-connected households in urban centres in Sierra Leone found daily consumption of electricity ranging from 3.8 to 14.7kWh per household per day, with an average of 5.6kWh. Meanwhile a study by the same university of 54 communities connected to solar PV powered mini-grids in rural Serra Leone found average household electricity use was just 0.28 kWh per day. At the time of the study the residential tariffs for mini-grids in Sierra Leone were roughly three to four times the costs of the equivalent tariffs for grid-connected consumers. This may have had something to do with rural mini-grid users consuming just 5% of the electricity their urban grid-connected counterparts consumed.
In contrast, research conducted by the Policy Studies Institute in Ethiopia (Beyene, Jeuland, & et-al, 2022) found domestic electricity consumption levels averaging 8.6kWh per day across a sample of 2180 households in major cities in Ethiopia. This is 50% higher than that of the average gird-connected urban households in Sierra Leone and comparable with European domestic consumption levels such as Germany at 8.8 KWh per day or the UK at 9.8 KWh per day (Odyssee-Mure, 2019). Even after tariff reforms in Ethiopia (Hassen, Beyene, & et-al, 2022), the country had one of the lowest domestic tariffs in sub Saharan Africa at US$0.026 cents (BIRR 1.375) per KWh. It’s unsurprising then that Ethiopian households consumed more electricity than those in Sierra Leone given, at the time of the studies, the Ethiopia tariff was just 18% of the equivalent US$0.14 per KWh tariff for grid-connected consumers in Sierra Leone, and just 4% of the average Sierra Leone domestic mini-grid tariff.
Designing for productive use matters
Affordability of tariffs is not the only factor determining whether electricity has a positive social and economic impact.
The research looking at mini-grids in Sierra Leone confirmed households benefited from improved lighting. This may have important social benefits in terms of enabling greater social interaction after dark, the ability to charge phones and have better access to information and improved perceptions of security. The research however found very little indication of significant health, education or economic impacts on beneficiary communities compared to similar communities without electricity connections. While tariff affordability was undoubtedly a factor behind the extremely low levels of domestic electricity consumption found at these sites, it was not the only constraint. These mini-grids were primarily designed to electrify local clinics, with a secondary goal of providing electricity to surrounding communities. As such, the systems were under-designed from the perspective of a rural electrification goal and their solar PV arrays and batteries were unable to cope with either a peak or total daily demand from households that exceeded a lighting load, ruling out demand growth or productive use.
Mini-grid developers face a challenge in designing new installations where electricity has not been available in the past. Demand is likely to be low in the first instance, mainly limited to domestic lighting, and it can take time, sometimes several years, for productive use demand to grow. Designing a system to cope with a future productive use demand can leave systems unable to cover their costs through tariffs in the early years when demand is very low. Alternatively, designing systems for initial low demand situations can then constrain or prevent the growth of productive demand. Although the extension of grid electricity into previously unelectrified areas faces the same challenge, mini-grids are often expected to cover their own costs and generally lack the benefits that cross-subsidies can bring in grid systems, making the issue more acute. As a result there is a danger that a ‘missing middle’ emerges where, in contrast to households connected to grid supplies, communities served by off-grid facilities (both mini grid and solar home systems) have a basic lighting service but lack access to the level of electricity supply necessary to stimulate productive use and economic growth.
Electricity alone is not enough.
Finally, for electricity to deliver economic and social impacts access is also needed to productive use appliances: irrigation pumps, mills and presses for agricultural, fridges, freezers and entertainment equipment for the commercial sector and so on. For communities reliant on off-grid supplies it is absolutely critical that these appliances are not only affordable but also super-efficient, both to keep operating costs affordable in a high-tariff environment and to make the best possible use of what is often a limited electricity supply. There are people working on this. The energy efficient appliance organisation CLASP, in conjunction with the Global Energy Alliance for People and Planet (GEAPP) and Nithio have launched a Productive Use Appliance Financing Facility across East, West and Central Africa. A recent funding round call under the facility received applications from companies active in the DRC for around USD 2 million of subsidies for about 30,000 appliances. The Global Distributors’ Collaborative is another interesting effort to support last mile distributors of appliances, along with Energrow, a distributor of off-grid appliances and a provider of asset finance active in Uganda and Kenya. But more needs to be done.
Providing access to electricity to the 775 million people who don’t currently have it in the world is a necessary precursor to social and economic development. But that access has to be to sufficient electricity to make a difference, at a cost that is affordable. It also needs to be accompanied by affordable and super-efficient appliances to convert electricity into useful productive work, if those hoped-for social and economic impacts are to materialise in practice.
References
Beyene, A., Jeuland, M., & et-al. (2022, January). Pre-paid meters and househld electricity use behaviours: evidence from Addis Ababa, Ethiopia. Retrieved July 20, 2022, from Energy and Economic Growth Applied Research Programme: file:///C:/Users/strace/Downloads/Prepaid%20Metering_working%20paper%2020220122%20(1).pdf
Hassen, S., Beyene, A., & et-al. (2022, February). Working Paper: The effect of electricity price reform on households’ electricity consumption in urban Ethiopia. Retrieved July 20, 2022, from Energy and Economic Growth Applied Research Pro0gramme: https://www.energyeconomicgrowth.org/sites/default/files/2022-03/Revised%20tariff%20paper_2022.pdf
Lee, K., Miguel, E., & Wolfram, C. (2017, 05 1). Electrification and Econonic Development: A Microeconoic Perspective. Retrieved from Applied TResearch Programme on Energy & Eocnonic Growth: https://www.energyeconomicgrowth.org/sites/default/files/2018-02/1.3%20McCulloch.pdf
McCulloch, N., & Zileviciute, D. (2016, December). Is Electricity Supply a Binding Constraint to Economic Growth in Developing Countries? Retrieved from Applied Research Programme on Energy & Econonic Growth: https://www.energyeconomicgrowth.org/sites/default/files/2018-02/1.3%20McCulloch.pdf
Odyssee-Mure. (2019). Sectoral Profile – Households, electricity consumption per dwelling. Retrieved July 5, 2022, from Odyssee-Mure: https://www.odyssee-mure.eu/publications/efficiency-by-sector/households/electricity-consumption-dwelling.html
